AXP Taps Brakes, but Long-Term Growth Prospects Remain Strong

American Express (AXP) stock has underperformed its peers this year, down 6% year-to-date compared to Visa's 6% gain and Mastercard's flat performance. The Dow Jones Industrial Average and S&P 500 have both outpaced AXP by 13%. Analysts are divided on the stock, with only 48% rating it a 'buy', significantly lower than the 93% for both Mastercard and Visa.

The company reported strong Q2 earnings on July 24, beating estimates with revenue increasing 10% year-over-year to $19.6 billion. Earnings rose 11% to $4.53 per share, while credit quality remained strong. American Express raised its revenue guidance for the fiscal year to 10% growth, but kept its earnings guidance at $17.30 to $17.90 per share.

The main concern is higher spending on customer engagement and acquisition costs, which rose 12% in Q2 to $14.5 billion, outpacing revenue growth. However, CEO Stephen Squeri argues that this investment ramp-up is necessary to maintain high retention rates and ensure long-term growth.